Today, the House Financial Services Committee is holding yet another hearing on the foreclosure crisis. Of all witnesses testimony, I found some of the statistics provided by Chase Bank particularly intriguing. Last Friday, I wrote about how challenging banks and servicers are finding it to finalize mortgage modifications under the Obama administration's plan. Chase confirms the difficulty in making modifications permanent through government programs, but not its own.
In my entry from Friday, I cited a New York Times article that explained the problem isn't getting these modifications started -- that's the easy part. Many modifications enter trial period, but borrowers aren't keeping up with their first three payments and/or providing all of the necessary documentation. According to the Times, a staggering number of trial modifications result in failure.
The prepared testimony (.pdf) of Ms. Molly Sheehan, Senior Vice President at Chase Home Finance spoke to this problem. Here's one snapshot of Chase's experience in making modifications permanent:
In that chart, the three columns are as follows: HAMP represents modifications under the Obama administration program; CHASE represents its own proprietary modification program; and GSE/FHA/VA represents Government Sponsored Entity modification programs.
As you can see, the government-driven modification programs are doing pretty poorly. A mere 8% of HAMP modifications are approved to be made permanent. The GSE programs aren't doing much better, at only an 11% success rate. Meanwhile, Chase's own modification program is doing comparably very well with almost half likely to be made permanent.
This is kind of a peculiar result. Why is Chase doing so much better modifying mortgages through its proprietary program than the Obama administration program or GSE programs? Remember, the bank and employees are the same for all three modification types within these statistics. So the bank's attitude towards modifications or processes it uses can't have much to do with it.
The only thing I can figure is that Chase's own modification program caters to borrowers of higher credit quality. This result could support the hypothesis that borrowers are more to blame than the bank. If Chase can have relative success with its own modification program, then the borrowers themselves must be holding back the success of the other programs.
Of course, conspiracy theorists will argue that Chase might be purposely "losing" the documents from borrowers participating in the HAMP and GSE programs. If they have lower credit quality, and Chase is worried about those borrowers ultimately paying the rewritten mortgages, then it has a motive for doing so. But I still find that a little hard to believe, considering how much drastically worse those programs are doing. And remember, Chase has more incentive to complete HAMP modifications than its own -- the government provides it some extra cash to make them happen.
But these statistics do show one thing: not all mortgage modification programs are disastrously unsuccessful. In the case of Chase, that distinction appears reserved only for the programs developed by the government.
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